Russia’s aid to Belarus’ international reserves: refinancing her own loans

Belarus’ international reserves have marked an increase for the first time in 2014 due to the incoming loan from Russia’s VTB Bank. The Government has used these funds to refinance the existing debt – mainly to Russian counterparts. Now it is raising new loans in order to have enough cash by early 2015, when the new rules will take effect, enabling Belarus to raise additional USD 1.5 billion in oil export duties. Belarus also counts on Russia to continue helping her within the Eurasian Economic Union integration.

In H1 2014, Belarus’ gold reserves declined gradually: between January and May 2014, the reserves shrank by USD 1.25 billion. As of June 1st, the reserves totalled USD 5.4 billion, an equivalent of 1.4 months of Belarus’ imports. In June, the international reserves grew by USD 1 billion – due to a USD 2 billion loan from Russia’s VTB Bank. In addition, the world prices on gold went up, thus increasing Belarus’ gold reserves by USD 90 million (the National Bank partially sold its gold reserves). The Finance Ministry also received some cash from selling foreign currency bonds on the domestic market.

Having received the USD 2 billion loan from the VTB Bank, Belarus has spent just over USD 1 billion and transferred the rest to her international reserves. In particular, she spent USD 169 million to repay the IMF ‘stand-by’ loan and made payments for the loan from Venezuela. The lion’s share of the loan was sent back to Russia. For instance, on June 26th, Belarus repaid the USD 440 million loan from Russia’s VTB Bank (issued in December 2013 for a 6-month period); and paid USD 88.3 million to the EurAsEc Anti-Crisis Fund for previous loans. Despite its international status, the ACF is funded by Russia. Belarus also made other payments on loans previously issued by Russia. In turn, the VTB Bank loan will be refinanced through a loan from the Russian government, which is expected in Q4 2014. In fact, this loan’s first tranche (USD 450 million) was disbursed on July 9th.

Belarus is raising new loans in order to refinance her previous loans and to readjust the international reserves’ dynamics. Without the loans, Belarus’ international reserves would have shrunk to USD 4.4 billion, an equivalent of 1.1 months of imports – a critical mark for the national currency’s stability. Belarus needs to make it to early 2015, when she anticipates improving the public debt repayments situation due to the additional budget proceeds of USD 1.5 billion from oil export duties. With loans, oil export duties, market access, innovative and re-export schemes Russia pays for Belarus’ participation in the Eurasian integration. Russia has agreed to bear these costs in order to ensure greater influence over Belarus in the long-term.

Overall, Russia has refinanced her own loans to Belarus in order to conserve Belarus’ gold reserves. Due to increased integration within the EEU and relatively small funds required to aid Belarus, Russia will continue providing financial support to Belarus. In the mid-term, this means that the national currency will be gradually depreciated, however a one-time devaluation will be avoided.